Incorporator The Journal of U.S. Formation
Start Free Quiz
Editorial 10 MIN READ

Arkansas in late June 2019: a $45 online formation and a $150 tax that comes due in May

The Certificate of Organization is thin, the annual Franchise Tax Report is flat, and the state's income code is rewriting itself in both directions

The Editors
Staff, Incorporator.org
10 min read Updated
Contents 6 sections
  1. The mechanics
  2. Maintenance, and why May 1 is the date that matters
  3. The tax backdrop, which is moving in 2019
  4. The headquarters backdrop
  5. Who Arkansas actually makes sense for
  6. Sources

rkansas LLC formation costs $45 online or $50 on paper to file the Certificate of Organization, and $150 every year to keep the entity in good standing through the LLC Franchise Tax Report. The second number is the one that surprises people: Arkansas calls it a franchise tax, it is due May 1, and it is charged whether the LLC did anything that year or not.

This is a guide for someone forming in Arkansas in the summer of 2019, written to the Secretary of State's filing portal as it actually behaves and to the Small Business Entity Tax Pass Through Act as it actually reads.

The mechanics

You file a Certificate of Organization with the Arkansas Secretary of State, Business and Commercial Services Division. The statute that authorizes and governs the filing is the Small Business Entity Tax Pass Through Act, Ark. Code Ann. Title 4, Chapter 32, which has carried Arkansas LLCs since its enactment in 1993 and which sits alongside the more recent Uniform Limited Liability Company Act that Arkansas has not adopted. The Certificate is thin: the name of the LLC (which must include "Limited Liability Company," "Limited Company," "L.L.C.," "LLC," "L.C.," or "LC" under Ark. Code Ann. § 4-32-103), the name and physical Arkansas street address of the registered agent, the principal place of business, and a signature. The Secretary of State's form mirrors the statute and adds almost nothing.

The standard filing fee is $45 if you file online through the Secretary's portal, $50 if you file the paper Form LL-01 by mail. Online filings clear within a business day in most cases. Paper filings run longer and require a mailed check. The $5 saving for online filing is nominal; the time saving is real. Unless you have a reason to paper-file (a signature oddity, a non-standard purpose clause, a name that the portal rejects on a collision the examiner will override), the portal is the route.

You will then need an EIN, which the IRS issues on Form SS-4 online at no cost. You will need an operating agreement, which the Arkansas statute contemplates at Ark. Code Ann. § 4-32-404 and treats as the controlling internal document but which the Secretary does not ask you to file. You will need to decide, for federal tax purposes, whether to let the default treatment run (disregarded entity for a single-member LLC, partnership for a multi-member), or to file Form 8832 to elect C-corp treatment, or Form 2553 to elect S-corp treatment. Arkansas honors the federal classification; there is no separate state election.

Name reservation, if you need it, is a separate filing at $22.50 online or $25 on paper under Ark. Code Ann. § 4-32-104, and holds the name for 120 days. Most founders skip this and file when ready.

Maintenance, and why May 1 is the date that matters

Arkansas does not require a conventional annual report from LLCs. It requires an Annual LLC Franchise Tax Report, filed with the Arkansas Secretary of State (historically through the Department of Finance and Administration, with the franchise tax function moved under the Secretary's office for the 2019 cycle). The report is due May 1 every year, and the accompanying franchise tax is a flat $150 for every LLC on the rolls, regardless of revenue, assets, or activity. The statute is Ark. Code Ann. § 26-54-104, which fixes the $150 LLC rate, and Ark. Code Ann. § 26-54-105, which sets the May 1 filing deadline.

There is no proration for an LLC formed in November. The $150 falls due the next May 1, and then every May 1 after that, until the LLC formally dissolves or withdraws. Miss the deadline and the penalty under Ark. Code Ann. § 26-54-111 is $25 plus interest at 10% per year on the unpaid balance. The penalty stacks year over year, and the Secretary will eventually revoke the LLC's authority to transact business for an accumulated franchise tax delinquency, which is reversible only through a reinstatement filing that clears the arrears.

The report itself is short. Online filing through the Secretary's franchise-tax portal takes five minutes and accepts a credit-card payment. Paper filers download the form, fill it in, and mail a check. The information asked for is minimal (entity name, filing number, registered agent, officer or member contact, signature), and there is no revenue disclosure. The $150 is the whole substance of the filing.

Arkansas-domiciled corporations run on a different franchise-tax formula, computed on outstanding capital stock under Ark. Code Ann. § 26-54-104 at 0.3% of the proportion of capital stock employed in the state, with a $150 minimum. LLCs pay the flat $150 regardless. An LLC that elected C-corp treatment for federal purposes still files the LLC franchise tax at $150, not the corporate schedule; the federal tax election does not change the state franchise-tax classification.

The mailed notice the Secretary sends in early spring looks unremarkable. It is not junk. It is the instrument that keeps the entity in good standing, and founders who toss it with the other February mail end up paying the penalty and the reinstatement fee in October when they discover the status while trying to open a bank account or close a sale.

The tax backdrop, which is moving in 2019

Arkansas's income tax code is in the middle of a rewrite on both the individual and corporate sides, and the 2019 legislative session moved both.

On the individual side, Act 182 of 2019 (Senate Bill 211), signed by Governor Hutchinson in February, reduced the top marginal rate for the highest-income bracket and restructured the middle-income schedule. Individual rates for tax year 2019 run on a graduated schedule from 2% at the bottom to a top rate of 6.9% for taxable income above the top threshold. The 2019 Act continues a multi-year compression path that earlier legislation (notably Act 22 of the 2017 First Extraordinary Session and the 2015 middle-income reduction) started. For a pass-through LLC whose members are Arkansas individuals, the member-level state rate runs on this schedule, and the top bracket governs the marginal dollar for most profitable owner-operators.

Arkansas's individual income structure is unusual in that it runs three separate rate schedules (for low-income, middle-income, and high-income filers) rather than one unified graduated schedule, and which schedule applies depends on the filer's total taxable income. The 6.9% top rate applies on the high-income schedule. A high-income Arkansas LLC member computing 2019 state tax is working off a code that already looks different from 2017 and will keep moving.

On the corporate side, Act 822 of 2019 (Senate Bill 576), also signed in the 2019 session, set a multi-year corporate rate reduction. For tax year 2019 the corporate top rate remained 6.5% on taxable income over $100,000, with a graduated schedule below that. Act 822 stepped the top rate down beginning in 2021, with further reductions scheduled to bring the top rate to 5.9% by 2022. An LLC that elected C-corp treatment in 2019 sits inside the 6.5% rate with a committed glide path downward. The argument for electing C-corp treatment does not turn on Arkansas's rate alone, but the direction of state policy is friendly rather than hostile.

Arkansas conforms selectively to the federal Tax Cuts and Jobs Act. The 20% qualified business income deduction under Section 199A is a federal-only item; Arkansas has not adopted a state-side 199A conforming deduction, so an Arkansas LLC member computing 2019 state tax does not get a state version of the 20% cut. That is a meaningful difference from states like Iowa, which layered a reduced-percentage state 199A onto the federal deduction, and from non-conforming states that simply sit out the federal change. A pass-through Arkansas member gets 199A at the federal level and pays Arkansas on the pre-199A base.

Pass-through treatment remains the default for the overwhelming majority of owner-operated Arkansas LLCs. The combined federal rate (up to 37% in 2019), state rate (up to 6.9%), and self-employment tax on the pass-through income exceed the combined C-corp and dividend-level rates on paper, but the 199A federal deduction, the absence of a state 199A, and the flexibility of the pass-through return structure keep pass-through the right default for nearly all operating businesses. The analytic frame here is the same one that governs the LLC versus S-corp math at the 2018 recalibration, reapplied to Arkansas's specific rate schedule.

The headquarters backdrop

Arkansas is the corporate home of Walmart (Bentonville), Tyson Foods (Springdale), J.B. Hunt (Lowell), and Dillard's (Little Rock), which is a larger concentration of Fortune 500 headquarters than a state of three million people would ordinarily carry. The consequence for the formation economy is that the state's corporate services infrastructure (banks, outside counsel, registered-agent operations, commercial real estate) is more developed in the northwest corridor than in most comparable states. A founder forming an Arkansas LLC in Bentonville or Fayetteville gets service quality closer to a mid-market city than the state's population would predict. A founder in Little Rock gets a fuller legal market than the headcount suggests.

This matters less for a basic LLC formation, which needs nothing more than the Secretary of State's portal and an EIN. It matters more for a holding structure that will contract with one of the headquartered anchors, operate in the supply-chain orbit, or pursue financing from the Arkansas-connected investor base. The state's outside posture toward business is friendlier than the raw tax rates alone would suggest, and the 2019 legislative direction (rate reductions on both the individual and corporate sides, franchise-tax administration pulled under the Secretary of State for cleaner compliance) is consistent with that posture.

Who Arkansas actually makes sense for

Arkansas makes sense for founders operating in Arkansas. A Little Rock, Fayetteville, Bentonville, or Jonesboro business owner forming a local LLC has no reason to pay two states' filing and franchise-tax fees by forming in Delaware and then foreign-qualifying back into Arkansas. The math is worse, the compliance surface is larger, and the Delaware charter benefits do not travel with a small operating company that has no institutional investors in its near future. The $150 Arkansas franchise tax is low by national standards; Delaware's $300 LLC tax plus Arkansas foreign qualification adds up without adding anything a local operator needs.

Arkansas also makes sense for a supply-chain vendor or service company anchored to one of the large in-state headquarters, for a real-estate holding structure on Arkansas land, and for a family-business reorganization where the parties, the property, and the courts are all in-state. The statutory framework under Title 4, Chapter 32 is older than the Revised Uniform Act used by many sister states, but it has been stable for more than a quarter century and the case law around it is predictable, which is often what a closely-held operator wants from a state of formation.

Arkansas does not make sense for a software company headed into a priced venture round in the next eighteen months. Institutional investors will ask for a Delaware C-corp, and if they do not, their counsel will. Starting in Arkansas and converting later is a four-figure legal exercise plus a state-level reckoning on the conversion, and it leaves a scar on the cap table. Form Delaware on day one if Delaware is where you are headed; a walkthrough of the Delaware mechanics sits in the house Delaware formation guide.

Arkansas also does not make sense as a tax-shelter destination for non-Arkansas operators. The absence of privacy features of the sort that draw Wyoming and New Mexico shoppers, the flat $150 franchise tax that applies to every LLC on the rolls regardless of activity, and the 6.9% top individual rate for member distributions all argue against it. Arkansas is for people doing business in Arkansas.

One tactical note for the 2019 filer: the franchise-tax report that falls due May 1, 2020 will be the first one an LLC formed in late June 2019 owes. The report is not prorated, so the full $150 is due after roughly ten months of existence. Founders whose formation timing has flexibility occasionally push a late-year 2019 filing into January 2020 to gain the extra four months of runway before the first report is due. The saving is modest, but it is a free choice for anyone who does not need the entity on the books before year end.

Sources

Keep reading

More from the journal.